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Section 23 (g) - Negative Test (prohibits deductions if does not trade),…
Section 23 (g) - Negative Test (prohibits deductions if does not trade)
Prohibits the deductions of
to the extent to which
the money are not laid out or expended for the purposes of Trade
Any money claimed as a deduction
History
Previously
Section 23 (g)
required an expense to be incurred wholly and exclusively for purposes of trade
Currently
Section 23 (g)
provides for the appointment of expenditure incurred for both trade and non-trade purposes
Deductions will be disallowed to the extent that it was not expended for the purpose of trade
Court cases
Warner Lambert
The tax payer(subsidiary) was instructed by the Parent company to comply with social responsibilities to prevent possible loss of income. Therefore the costs were incurred in the production of income and deductible in terms of section 11(a)
Expenditure incurred in ensuring that income is not lost is incurred in the production of income
Scribante Constructions
Borrowing of money and re-lending it at a higher rate of interest, thereby making a interest, constitutes the carrying on of a trade
The interest paid by the taxpayer allowed it to retain shareholder's funds. The availability of funds allowed the taxpayer to gain competitive advantage
Section 23(h) - Prepaid expenditure
S23H
limits the deductions where the benefits from the expenditure are for a period which extends beyond the current year of assessment
however
S23H
does not apply if:
Liability imposed by legislation
Where the aggregate of all remaining prepayments are less than R100 000
goods/service are supplied within 6 months from year end